9. Tax System in Russia

Set out below is a brief description of the tax structure in Russia.

Taxes are regarded as budgetary funds since the collections are remitted to federal, regional or local budgets from which a variety of federal, regional or local expenditures are made. Certain other charges, such as the Unified Social Tax, are collected by the federal budget and then allocated to the nonbudgetary funds (Pension Fund, Social Fund and Medical Fund).

Federal vs. Regional and Local Taxes

The tax structure follows the federal nature of Russia in that the various republics and regions of the Russian Federation have certain rights regarding levying taxes. For this reason, some taxes such as VAT are applied across Russia at uniform rates (20 percent); some taxes such as the profit tax are applied across Russia at a tax rate determined in part locally (tax is then allocated based on respective rates – e.g., the federal profit tax rate is 11 percent, with an additional regional component of zero to 24 percent).

The effective profit tax rate may actually be higher than indicated because certain deductions are severely limited (e.g., entertaining, advertising, training). Some taxes – such as sales taxes (regional) and land taxes (local) – are determined, applied and collected only by the local or regional authorities. In addition to the taxes of general applicability, taxes are imposed on special industries such as extractions (4 to 16 percent) and advertising services (5 percent).

Among other basic taxes, there is a tax on turnover, which applies even if no profit is earned; individual income tax (13 percent on residents' worldwide income and 30 percent on nonresidents ' Russian source income); unified social tax on payroll; and a general property tax of 2 percent. Note that the resident individual income tax rate makes Russia a virtual tax haven – but for how long is unclear.

Tax system can result in different tax burdens for businesses operating in different locations due to variations in the rates and the existence of additional local taxes in specific jurisdictions.

Tax concessions are also not uniform – a federal or regional tax concession may not apply at the regional or local level. This structure also creates the need for local accounting, filing and tax payments in the event that a single legal entity has multiple branches or operations in different tax jurisdictions.

1. Match the words with their definitions:

tax

expenditure

apply

collect

allocate

impose

– to use a particular method, process, law, etc;

– to get money from someone for a particular purpose;

– to officially give something to someone, or decide that something can be used for a specific purpose;

– to introduce something such as a new law or new system, and force people to accept it;

– an amount of money you have to pay to the government that it uses to provide public services and pay for the government institutions;

– money spent by a government, organization or person.

2. Answer the following questions:

• What is the main feature of the tax system in Russia?

• Name the taxes collected across Russia?

• What is the VAT rate?

• What is the federal profit tax rate?

• Which industries have special taxes imposed in addition to the taxes of general applicability?

• What is the abbreviation for 'value added tax'?